Income Taxation System in Indonesia: An Overview on Regulation Updates
13 November, 2017
They say there are only two sure things in the world: death and taxes. Businesses and individuals working in Indonesia are subject to income tax, and it doesn't matter whether you're foreign or local. However, the rates can vary depending on certain criteria. Either way, income taxation includes corporate, individual, and withholding tax.
Corporate Income Tax
This is the tax paid by companies, the basis of which depends on whether the firm is a permanent resident in the country. If it is, tax is then based on the worldwide income. If it is non-permanent, only the income generated in Indonesia becomes subject to tax.
Since the fiscal period of 2010, the corporate tax rate is 25 percent on gross revenues even for non-resident with a permanent establishment (PE). The government may also levy 20 percent as branch profit tax based on the net profit after it has declared the tax.
However, the government does provide concessions, and the final tax rate can go down to as much as 1 percent. The criterion is gross revenues of no more than IDR 4.8 billion (~ $355,424). You can also reduce your tax rate by half if your company's gross turnover is up to IDR 50 billion (~ $3.7 million).
Public-listed companies with about 40 percent of its paid-up shares traded in the country's stock exchange may take advantage of 5 percent deduction from the standard corporate tax.
Income Tax Rate
Both local and foreign employees need to declare an income tax. Moreover, before, employers can pay the tax obligations for all their employees provided the job is the only source of income for the workers. Today, individuals should get a tax identification number called NPWP (Nomor Pendaftaran Wajib Pajak) from Indonesian tax office and submit an annual return. However, employers are still responsible for withholding a part of their salary as income tax.
The employee income tax rate varies according to your residency. You are considered a resident of Indonesia if you live here, you are living in the country during the fiscal period and you have no intention of living soon, or you have been in the country for no less than 183 days within 12 months.
If you are a resident, your income tax rate can range from 5 percent for those with up to IDR 50 million (~ $3,702) gross salary to 30 percent for individuals with a gross salary of more than IDR 500 million (~ $37,023).
If you don't meet the above-mentioned criteria, you are a non-resident and are therefore subject to 20 percent income tax rate unless you apply for NPWP and hold a valid working permit and KITAS.
(Note: Need help with work permits?Cekindo can help you!)
These income tax rates may seem high, so it's fortunate the Ministry of Finance has increased the nontaxable income to IDR 54 million (~ $3,998) in 2016.
Cekindo's Tax Team Is Here to Help
The details above are only the basics. In truth, taxation, whether in Indonesia or anywhere else in the world, is a very challenging topic and process. But you cannot get it wrong, or else, you end up spending more on sanctions or penalties.
Whether you're a local or a foreign business, our company provides accurate, reliable, and on-timeaccounting and tax reporting service. Our team of tax planners, lawyers, accountants, and consultants work together to make sure we can maximise your incentives, avoid back taxes and surcharges, and keep your company and employees compliant with tax regulations at all times. We then complement this with payroll processing and auditing review outsourcing.
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